8-Step Process for creating a Cash Flow Forecast for your Startup

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8-Step Process for creating a Cash Flow Forecast for your Startup

8-Step Process for creating a Cash Flow Forecast for your Startup

If you want to calculate your breakeven point, your valuation, or just create a budget for your company plan, you must create a cash flow estimate for your startup or business.

A financial model template, software, engaging an expert, or doing it yourself are some of your possibilities. This post will address the latter approach and provide guidance on how to create a 100% accurate cash flow projection for your company. Commence now!

What is a cash flow forecast?

A document known as a cash flow forecast, which is typically in the form of a spreadsheet like Excel or Google Sheets, contains an estimate of the cash flow (cash in and cash out) of a business over a specific time period.

In other words, a cash flow projection is essentially a projected version of a company's cash flow statement.

Why does your startup need a cash flow forecast?

Business owners and startup founders commonly present their initial budget and cash flow forecast when pitching investors. Budgets later commonly get outdated, remain in active in a folder, and are changed for the upcoming fundraising campaign.

But planning a budget for your business shouldn't just be about satisfying investors. It is important to keep an updated monthly cash flow budget if you want to improve your company's decision-making, thus you should put your cash flow projection ahead of your ongoing management obligations.

A few examples for creating (or updating) a cash flow forecast are:

  • Assess your breakeven point: when can you realistically expect to be profitable.
  • Estimate a valuation for your business, even if you are pre-revenue.
  • Include in your pitch deck or business plan.
  • Understand how much you need to raise for your fundraising.

How to create a cash flow forecast for your startup

Financial forecasting shouldn't be too difficult for your startup. Even without prior financial experience, one can produce excellent cash flow forecasts for any firm with some basic accounting and finance understanding. To construct your own, follow the steps below.

Consider using sources like market research studies, competitor analyses, or even your own financial performance to ensure that your cash flow estimate is as precise as possible (if any).

Step 1 - Start from your actuals (if any)

If you have any past performance data, use that as a starting point for creating your beginning cash flow estimate.

Financials(such as revenue) can be a measure of historical performance, but not exclusively. Proceed from there if you haven't yet begun to create revenue, your revenue isn't very large, or you believe other KPIs are more important. You can estimate growth and ultimately income using these figures, for example, if you have begun to establish a user list or email sign-ups.

Step 2 - List down all your startup costs

List all the costs you incur and the assets you must purchase before starting your business for new ventures without any prior performance data.

There are two categories of beginning costs:

  1. Assets: One-time acquisitions of assets like furniture, inventories, machinery, etc.
  2. Costs: Any costs (often fixed) you incur prior to opening your business. Do you have to pay legal expenses if you incorporate several businesses? Does purchasing a specific license for promoting your items to consumers cost money? Perhaps you'll have to hire someone to create the website from which you'll later on get customers?

Step 3 - Build your revenue model

Prior to estimating revenue based on the previously covered factors (step 1), it is important to clearly define your revenue model.

A revenue model is a structure for producing money. The value to be provided, how to price the value, and who will be paying for the value are all determined. It is an important part of a business model. It essentially outlines the goods or services that will be produced in order to make money as well as how they will be sold.

Step 4 - Forecast your variable costs

Depending on the volume of sales and/or other circumstances, the amount of variable costs may fluctuate (e.g. customers for instance). Because of this, they cannot just stay the same over time; rather, the amount will fluctuate based on other elements of your financial strategy. Common variable costs are:

  • Raw materials
  • Advertising spend (e.g. paid ads)
  • Packaging and shipping costs(e-commerce)
  • Transportation
  • Corporate taxes

Step 5 - Estimate all your fixed costs

Fixed costs in comparison, are easier to estimate as they remain fixed over the projected period. Common examples are:

  • Salaries and benefits (for each employee)
  • Website hosting
  • Bank fees
  • Rent and utilities

Step 6 - Putting it all together

After calculating their forecasts based on your primary drivers, you can now aggregate all of your anticipated revenue and expenses under your profit and loss. Subtract from revenue all expenses, both fixed and variable, as well as startup costs to arrive at net profit.

Using your net profit and subtracting any additional cash items (i.e., capital expenditures), such as the startup asset purchases described earlier, will enough to create your cash flow statement at this time (step 2).

Step 7 - Review and adjust

Spend some time going through your estimations after creating your expected profit-and-loss and (simplified) cash flow statement. Do you understand them? Are your predictions surprising in any way?

Your financial projection assessment should assist you in establishing two things:

  • Are all of your estimates accurate? Spreadsheets make it simple to lose track of things and make calculations errors.
  • Are your predictions accurate? It is now simpler to determine whether your estimates are feasible or not after taking a step back to consider the overall picture (sales, growth, margins, and cash flow).

Step 8 - Determine the amount you need to raise

If you are planning your cash flow, there is a good chance that your beginning business may incur losses during the first few months of operation. Do not worry; it is common for businesses to raise money at the onset, before starting operations or product development.


The amount of cash and cash equivalents utilized for investing, operating, and financing operations, as well as the net change in cash and cash equivalents for special treatments, are all disclosed in the cash flow statement. If you have a significant Cash Flow mistake, Jordensky is here to help.

About Jordensky

At Jordensky, we specialize in accounting, taxes, MIS, and CFO services for Startups and growing business and are focused on delivering an experience of unparalleled quality.

When you work with Jordensky, you get a team of finance experts who take the finance work off your plate– ”so you can focus on your business.”